Investment, innovation and policy fuelling growth in alternative proteins market

By Sofia De La Parra

Sofía De La Parra is a Senior ESG Analyst at the $69 trillion-backed FAIRR Initiative, a global investor network focused on environmental, social and governance risks in the global food sector.

A new report for investors has found that a combination of record investment, innovation and forward-thinking government policy is fuelling the market’s continued growth for alternative proteins — plant-based and food-technology alternatives to animal protein.

For investors, the sector continues to offer a unique chance to pursue a positive environmental impact with attractive diversification opportunities.

The research comes from the FAIRR initiative, an investor network focused on environmental, social, and governance risks and opportunities in the food sector. FAIRR has more than 360 members, and $69 trillion of member assets under management, including the likes of Canada Post Pension Plan, and is based on a collaborative engagement targeting 23 food giants such as Walmart, Saputo and Loblaw.

Alternative protein companies, such as Nuts For Cheese and Upside Foods, raised a record US$1.7 billion of private investment in the first half of 2022. This is in part because they are seen as more sustainable alternatives to meat and dairy products, which have significant negative environmental impacts by contributing to mass deforestation and biodiversity loss — an ever-increasing issue in the transition to a low-carbon economy.

Meaningful investment by the Canadian government is notable. This includes significant spending in research and production of plant-based proteins such as pea and canola, as well as alternative insect proteins.

Canada is the country that has invested the most in the sector, with a total of US $197 million in its recent history. While comparatively small compared with private investment, public investment is crucial in the growth of this industry as it sends important market signals that encourage investment from other sources.

Innovating beyond plant-based protein

Alternative proteins are also no longer just about plant-based substitutes. Massive strides have been made in the area of fermented and cultivated meat and dairy, which harvest organisms (fermentation) or animal cells (cultivation) in a lab to produce protein.

While these technologies are at varied states of viability, both have the potential to provide customers with genuine alternatives to animal-derived products.

These innovative production methods are garnering the attention of the private investment community. Investments into cultivated foods rose from $366 million to $1.2 billion (+228 percent), while investments in fermentation-enabled foods increased from $587 million to $1.5 billion (+147 percent) in 2021 compared with 2020.

Innovation is also happening at the food manufacturer and retailer levels through target setting.

In 2022, 35 percent of the 23 companies involved in FAIRR’s engagement committed to increasing the volume or sales of meat and/or dairy alternatives. This included the likes of Unilever and Nestle. This figure is up from 28 percent in 2021 and zero per cent in 2019.

Apart from improving protein-diversification targets, FAIRR engagement found that only five companies had set net-zero targets that include Scope 3 emissions and have set a protein portfolio diversification target. This is highly problematic, given that animal agriculture accounts for around 33 percent of total GHG emissions for the companies on average.

(Scope 3 emissions are the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly affects in its value chain). 

Creating a favourable regulatory environment

Governments are increasingly considering what the right regulatory environment is to facilitate the growth of this industry. For instance, Singapore has become the first to approve cultivated meat for sale to the public.

By contrast, some countries have enacted regulations preventing plant-based products from being labelled with words traditionally associated with meat products (such as plant-based sausages). Research, however, suggests these measures increase consumer confusion and depress sales of plant-based products.

In addition, world governments need to evolve dietary guidelines to align them with health and climate goals, creating a favourable market environment for alternative proteins.

Canada’s Food Based Dietary Guidelines, for instance, recommend reducing meat consumption but fail to state its scale explicitly. Having clear guidelines supporting plant-rich diets will help a range of stakeholders in Canada catalyse the dietary transition.

Canada announced a public consultation regarding the guidelines for alternative proteins this year, signalling a willingness to evolve its position on this issue. This is an encouraging sign in a market in need of guidance and clear government signals.

Moving toward a more sustainable food system

FAIRR’s report found much to be excited about in the alternative proteins sector. We are seeing major growth in the industry year on year, and the expansion of investment, innovation and policy support.

Given the value-creation potential of this sector, and its ability to provide sustainable food to worldwide consumers, it’s no surprise that investors are showing an increasing appetite for alternative proteins.

However, with emissions from livestock representing around 14 percent of global GHG emissions and time running out to limit global warming to 1.5 degrees Celsius, it is time for action. Experts are suggesting a long-term shift towards a split between plant-based protein sources and animal-derived proteins will be required to hit the 1.5 degrees C target.

Food companies, governments, and consumers alike need to listen to climate science and accelerate their ambition in helping the transition towards more sustainable protein consumption.

FAIRR members are at the heart of a global network of investors that encourages and helps companies move toward a more sustainable food system. FAIRR enables its members to better understand and manage ESG issues linked to intensive livestock production and protein value chains, FAIRR also welcomes investors to take part in its ongoing engagements.

Investor organizations can become members for free, accessing FAIRR proprietary research and data, webinars and engagement opportunities to support corporate transition towards sustainable practices. Members will also have access to free tools and resources such as the Coller FAIRR Protein Producer Index and the FAIRR Climate Risk Tool.

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